The Match Out: ASX hit 1.6% although some pockets of strength shone through

James Gerrish

Market Matters

A downbeat start to the new trading week with the ASX off more than 1%, although it wasn’t all bad news with some pockets of strength emerging as the day progressed pushing the index +50 points above the early morning lows. Healthcare was a standout +1.97% while recessionary fears led to declines in Energy (-6.30% and Materials (-5.27%).

  • The ASX 200 finished 105 pts / -1.60% at 6469
  • The Healthcare sector was best on ground (+1.97%) while Staples (+1.20%) & IT (+1.11%) were also strong.
  • Energy (-6.30%) and Materials (-5.27%) the weakest links.
  • While the broad market was weak, it seemed there was an appetite to buy some stocks but very much focussed on the defensive, profitable, well-known names that offer perceived safety.
  • One sector that didn’t experience this vote of confidence was the energy stocks, coal names in the firing line with Whitehaven (WHC) -14.02% and New Hope (NHC) -14.69%
  • November Coal Futures in Newcastle now trading at US$414/tonne versus the monthly high of $US445/tonne – news out this morning that the European Commission had slightly relaxed some sanctions on Russian thermal coal weighed on prices today (VIEW LINK)
  • The oil stocks were also weak, Woodside (ASX: WDS) -4.97% & Santos (ASX: STO) -7.28% adding to Friday’s woes.
  • Re-hashing what we wrote this morning…The oil price has broken to the downside after Fridays -5.8% plunge as recession fears intensify i.e. the Fed appears focused solely on quelling inflation which is not good news for oil and commodities which are likely to be casualties of a central bank-engineered economic slowdown.
  • We believe the risk/reward has swung in favour of the bears short-term after the clear break of $US85 support area.
  • Remember if we are correct and bond yields are topping out then the read-through for crude oil is neutral at best.
  • In terms of how we’ll ‘play’ the sector from here, we have a holding in Woodside (ASX: WDS) and we’ve been patiently waiting to get back into Whitehaven Coal (ASX: WHC), preferring to buy a downside washout as those late to the party get shaken out.
  • The flipside of that trade is Tech. If bond yields peak as the focus switches to recession, then Tech will outperform commodities, and we think if this plays out, the divergence will be significant given the big underweight the market now has towards tech. The direction for most pain is clearly up in tech & down in commodities.
  • Seek (ASX: SEK) +2.99% & REA Group (ASX: REA) +3.49% are two stocks we have recently bought while Altium (ASX: ALU) +3.27% which we own also looks great ~$35 after an impressive FY22 result + strong guidance.
  • CSL +2.4% was solid today on a broker upgrade, Jeffries putting out a buy and $320.50 PT, Resmed (ASX: RMD) +2.87% and Cochlear (ASX: COH) +2.94% followed suit.
  • Ramsay Healthcare (ASX: RHC) -2.40% fell after they officially ended talks with the KKR led consortium, a deal is unlikely in the short term.
  • Sigma (ASX: SIG) -5.71% fell after delivering 1H23 results but failed to provide guidance.
  • Iron Ore was down 2% in Asia, the Iron Ore miners down 4-5%.
  • Gold was down 0.5% at ~US$1637 at our close.
  • Asian stocks were down, the Nikkei in Japan the hardest hit (-3%) while Hong Kong fell -0.36% and China was off -0.18%
  • US Futures are down about 0.6% across the board, they did have a choppy session, stronger early before tapering off.

ASX 200 Chart

Iluka (ILU) $8.82

ILU -4.85%: The Mineral Sands company has been knocked ~10% in the last two trading sessions on concerns around global growth (which has hit most commodities) plus last week global pigment producer Chemours provided a disappointing update downgrading full year guidance by ~6%. They talked to specific issues within the Titanium segment and this is where Australian Mineral Sands product generally ends up. Chemours said…."In our titanium (TT) segment, we have experienced a continued decline in our demand outlook throughout Q3, most notably in Europe and Asia. Lower demand, coupled with continued high input costs (energy, raw material ie mineral sand feedstocks), have impacted our projected results for the full year”. This is the risk now around the commodity trade in the short term, i.e. recessionary fears hitting demand at a time when cost pressures are still bubbling away.

Sigma Healthcare (SIG) 66c

SIG -5.71%: first half results from the pharmaceutical product wholesaler was reasonable on the first read, however there are still a number of issues holding performance back. EBITDA was up 17% to $20.7m, while the company posted a net loss of $1.5m, though it included $38.7m worth of write-downs on assets and inventory. RAT sales continued to prop up the numbers, though a return to ‘normal’ has seen general pharmaceutical sales improve. The long standing issues with the company’s ERP software have been resolved and it is now up and running as designed. Costs have weighed on the numbers though with freight costs up 11% and employment costs up 13% including $3.3m increase in ongoing tech and support costs. Sigma didn’t give any firm guidance which further concerned the market, only talking to simplification and cost reduction.

Broker Moves

  • Austin Engineering Rated New Buy at Shaw and Partners
  • Bendigo & Adelaide Raised to Neutral at Jarden Securities
  • CSL Raised to Buy at Jefferies; PT A$320.50

Major Movers Today

Have a great night

The Market Matters Team

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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